U.S. Budget Stalemate, Italian Elections Stir Concerns
Mortgage rates were lower last week as investors sought safety in bonds in the wake of US legislators’ failure to agree on budget cutbacks, and after Italy’s elections failed to reveal a leader committed to continuing economic reform.
When bond prices including Mortgage Backed Securities rise, mortgage rates typically fall.
While the March 1st deadline for passing budget cutbacks for the U.S. government passed without a resolution, emergency legislation passed last year will keep the government running until March 27.
If a budget is not passed by then, the federal government could face shutdown.
As it stands, $85 billion in cuts are scheduled over the next seven months, but this represents only about 2 percent of the federal budget.
Investor concerns are likely to rise if the March 27 deadline approaches without a resolution.
Italian Elections Influence Investor Sentiment
On Monday, Italian elections were held, but the results did not reveal a leader dedicated to continuing economic reforms necessary for stabilizing Italy’s economy.
Another round of elections may be required to determine Italy’s new leader.
There is deep conflict in Italy as citizens do not agree with the need for economic austerity measures.
As the Eurozone’s third largest economy, Italy’s division on future economic reforms raises two concerns for investors.
First, without a clear reform leader established in last week’s elections, Investors fear that austerity measures may be relaxed and increase Italy’s debt risk.
A less likely risk is that Italy may leave the EU if it cannot resolve its need for economic reforms with its citizens’ wishes.
Upcoming Economic Releases
The coming week’s scheduled economic releases include:
As spring approaches, demand for homes typically increases, which in turn may drive up home prices and mortgage rates.
Consider getting pre-approved for a mortgage and looking for your new home sooner than later.